Management’s Discussion and Analysis
of Financial Condition and Results of Operations

SEGMENT RESULTS OF OPERATIONS (1 of 3)

We have two reportable segments, which we operate and manage as
strategic business units and organize by products and services. Our
segments are Wireline and Domestic Wireless. You can find additional
information about our segments in Note 17 to the consolidated financial
statements.

We measure and evaluate our reportable segments based on segment
income. Corporate, eliminations and other includes unallocated corporate
expenses, intersegment eliminations recorded in consolidation,
the results of other businesses such as our wholly-owned insurance and
leasing subsidiaries, the results of investments in unconsolidated businesses,
primarily Vodafone Omnitel, and other adjustments that are not
allocated in assessing segment performance. These adjustments also
include transactions that the chief operating decision makers exclude in
assessing business unit performance due primarily to their non-recurring
and/or non-operational nature. Although such transactions are excluded
from the business segment results, they are included in reported consolidated
earnings. Gains and losses that are not individually significant are
included in all segment results, since these items are included in the chief
operating decision makers’ assessment of unit performance.

Wireline

The Wireline segment consists of the operations of Verizon Telecom, a
provider of communication services, including voice, broadband video
and data, network access, long distance, and other services to residential
and small business customers and carriers, and Verizon Business, which
provides next-generation IP network services to medium and large businesses
and government customers globally. Operating results shown for
2006 exclude the results of the former MCI prior to the date of the merger
(January 6, 2006).

Operating Revenues

(dollars in millions)

Years Ended December 31,

2007

2006

2005

Verizon Telecom

Mass Markets

$

21,978

$

22,234

$

20,044

Wholesale

8,086

8,336

9,084

Other

1,862

2,368

2,566

Verizon Business

Enterprise Business

14,677

14,296

6,385

Wholesale

3,345

3,281

1,386

International and Other

3,214

3,101

—

Intrasegment Eliminations

(2,846

)

(2,888

)

(1,849

)

Total Wireline Operating Revenues

$

50,316

$

50,728

$

37,616

Verizon Telecom

Mass Markets

Verizon Telecom’s Mass Markets revenue includes local exchange (basic
service and end-user access), value-added services, long distance, broadband
services for residential and certain small business accounts and FiOS
TV services. Also included are revenues generated from former MCI consumer
and small business products and services. Long distance includes
both regional toll services and long distance services. Broadband services
include DSL and FiOS data.

Our Mass Markets revenue decreased by $256 million, or 1.2% in 2007,
and increased by $2,190 million, or 10.9% in 2006. The decrease in 2007
was primarily driven by lower demand and usage of our basic local
exchange and accompanying services, attributable to consumer subscriber
losses. These losses are driven by competition and technology
substitution, including wireless and VoIP. These decreases were partially
offset by growth from broadband services and FiOS TV services and the
inclusion of the results of operations of the former MCI business subsequent
to the close of the merger on January 6, 2006, which helped drive
the increase in 2006 over 2005.

Declines in switched access lines in service of 8.1% in 2007 and 7.6% in
2006 were mainly driven by the effects of competition and technology
substitution. Residential retail access lines declined 9.5% in 2007 and 8.8%
in 2006, as customers substituted wireless, VoIP, broadband and cable services
for traditional voice landline services. At the same time, business retail
access lines declined 4.0% in 2007 and 3.2% in 2006, primarily reflecting
competition and a shift to high-speed access lines. The resulting total
retail access line loss was 7.6% and 6.9% in 2007 and 2006, respectively.
Access line losses include the loss of lines served by the former MCI.

We added 1,253,000 new broadband connections, including 854,000
for FiOS data in 2007. We ended 2007 with 8,235,000 broadband lines
in service, including 1,541,000 for FiOS data, representing an increase of
17.9% compared to 6,982,000 lines in service at December 31, 2006. In
addition, we added approximately 736,000 FiOS TV customers in 2007
and ended the year with a total of 943,000, an increase of approximately
355% compared to 207,000 FiOS TV customers at December 31, 2006. As
of December 31, 2007, for FiOS data and FiOS TV, we achieved penetration
rates of 20.6% and 16.0%, respectively, across the markets where we
have been selling these services.

Wholesale

Wholesale revenues are earned from long distance and other competing
carriers who use our local exchange facilities to provide services
to their customers. Switched access revenues are generated from fixed
and usage-based charges paid by carriers for access to our local network.
Special access revenues are generated from carriers that buy dedicated
local exchange capacity to support their private networks. Wholesale
services also include local wholesale revenues from unbundled network
elements (UNEs) and interconnection revenues from competitive local
exchange carriers (CLECs) and wireless carriers.

Wholesale revenues decreased by $250 million, or 3.0% in 2007 and by
$748 million, or 8.2% in 2006, due to declines in switched access revenues
and local wholesale revenues (UNEs) and, in 2006, the reduction
in access revenues billed to the former MCI mass market entities. These
declines were partially offset by increases in special access revenues.

Switched minutes of use (MOUs) declined in 2007 and 2006, reflecting
the impact of access line loss and wireless substitution. Wholesale lines
decreased by 15.9% in 2007 due to the ongoing impact of a 2005 decision
by a major competitor to deemphasize their local market initiatives.
Special access revenue growth reflects continuing demand for high-capacity,
high-speed digital services, partially offset by lower demand for
older, low-speed data products and services. As of December 31, 2007,
customer demand for high-capacity and digital data services increased
8.2% compared to 2006.

Other revenues include such services as operator services (including
deaf relay services), public (coin) telephone, card services and supply
sales, as well as dial around services including 10-10-987, 10-10-220,
1-800-COLLECT and Prepaid Cards.

Verizon Telecom’s revenues from other services decreased by $506
million, or 21.4% in 2007, and by $198 million, or 7.7% in 2006. These revenue
decreases were mainly due to the discontinuation of non-strategic
product lines and reduced business volumes, partially offset by the inclusion
of revenues from the former MCI in 2006.

Verizon Business

Enterprise Business

Our Enterprise Business channel distributes voice, data and Internet
communications services to medium and large business customers, multinational
corporations, and state and federal government customers. In
addition to communication services, this channel provides value-added
services that make communications more secure, reliable and efficient.
Enterprise Business provides managed network services for customers
that outsource all or portions of their communications and information
processing operations and data services such as Private IP, Private Line,
Frame Relay and ATM services, both domestically and internationally.

Enterprise Business 2007 revenues of $14,677 million increased by
$381 million, or 2.7%, as compared to 2006, primarily reflecting growth
in demand for our strategic products, specifically IP services and managed
services, as well as the inclusion of the results of operations of the
former MCI business subsequent to the close of the merger on January
6, 2006. The IP suite of products is Enterprise Business’ fastest growing
set of product offerings and includes Private IP, IP VPN, Web Hosting and
VoIP. Our Enterprise Business channel services many customer accounts
that are moving from core data products to IP based products. This shift
in technology is occurring across our customer base. Enterprise Business
2006 revenues of $14,296 million increased $7,911 million, or 123.9%
compared to 2005 primarily due to the acquisition of MCI.

Wholesale

Our Wholesale revenues relate to domestic wholesale services and
include all interexchange wholesale traffic sold in the United States, as
well as internationally destined traffic that originates in the United States.
The Wholesale line of business is comprised of numerous large and small
customers that predominately resell voice services to their own customer
base. A portion of this revenue is generated by a few large telecommunication
carriers, many of whom compete directly with Verizon.

Verizon Business 2007 Wholesale revenues of $3,345 million increased
by $64 million, or 2.0% as compared to 2006, primarily due to increased
MOUs in traditional voice products, partially offset by continued rate compression
due to competition in the marketplace. During 2006, Verizon
Business Wholesale revenues of $3,281 million, increased $1,895 million,
or 136.7%, compared to 2005, primarily due to the MCI acquisition.

International and Other

Our International operations serve retail and wholesale customers,
including enterprise businesses, government entities and telecommunication
carriers outside of the United States, primarily in Europe, the
Middle East and Africa, the Asia Pacific region, Latin America and Canada.
These operations provide telecommunications services, which include
voice, data services, Internet and managed network services.

International and other revenues of $3,214 million during 2007 increased
by $113 million, or 3.6% as compared to 2006. Revenue growth in our strategic
products, specifically IP services, was partially offset by competitive
rate compression and lower volumes with respect to our voice products.
Our revenues from International and Other in the year ended December
31, 2006 were $3,101 million. This market represented a new revenue
stream to Verizon resulting from the MCI acquisition on January 6, 2006.

* This is an interactive electronic version of Verizon’s 2007 Annual Report to Shareowners, and it is intended to be complete and accurate.
The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is
available in PDF format on this website.